Monday, November 30, 2009

January is traditionally the worst time of year for debt defaults, according to the credit checking company Experian. The recent surge in unemployment and personal insolvencies will make the first quarter "the busiest period ever", the company said.

"Christmas is a catalyst for delinquency and bad debt, with credit card and overdraft debt traditionally peaking in the New Year," Simon Waller, Experian's head of collections for UK and Ireland, said.

"Economic indicators and feedback from our collections clients suggests that the first quarter of 2010 could be the busiest period ever seen."

Experian is anticipating the worst due to the 771,000 job losses in the first nine months of the year, a 94pc increase on 2008, and the record quarterly personal insolvency rate of 41,390 for the three months to September.

Banks have also been cranking up their marketing to households in the run up to Christmas. The Call Prevention Registry has seen a 50pc increase in "nuisance calls" from debt management organisations in the past month trying to persuade customers to take out new loans.

Chinese Premier Wen Jiabao rejected “unfair” calls for the yuan to appreciate and European leaders acknowledged that they had failed to shift the nation’s stance on its currency.

“Some countries are now calling for yuan appreciation while imposing trade protectionism on China, which is unfair and actually limits China’s development,” Wen said at a briefing in the Chinese city of Nanjing today. In the financial crisis, “a stable yuan is helpful to the development of the Chinese economy and the world’s economic recovery,” he added.

European officials indicated yesterday that they failed to convince China to loosen controls on the yuan that shelter Chinese exporters from the U.S. currency’s slide and make euro- region goods relatively less competitive. The euro has surged about 20 percent versus the dollar since Feb. 18, undermining the region’s recovery from the worst slump since World War II. The yuan is effectively pegged to the dollar.

Call it the fractal geometry of fiscal crisis. If you fly across the Atlantic on a clear day, you can look down and see the same phenomenon but on four entirely different scales. At one extreme there is tiny Iceland. Then there is little Ireland, followed by medium-size Britain. They're all a good deal smaller than the mighty United States. But in each case the economic crisis has taken the same form: a massive banking crisis, followed by an equally massive fiscal crisis as the government stepped in to bail out the private financial system.

Size matters, of course. For the smaller countries, the financial losses arising from this crisis are a great deal larger in relation to their gross domestic product than they are for the United States. Yet the stakes are higher in the American case. In the great scheme of things—let's be frank—it does not matter much if Iceland teeters on the brink of fiscal collapse, or Ireland, for that matter. The locals suffer, but the world goes on much as usual.

But if the United States succumbs to a fiscal crisis, as an increasing number of economic experts fear it may, then the entire balance of global economic power could shift. Military experts talk as if the president's decision about whether to send an additional 40,000 troops to Afghanistan is a make-or-break moment. In reality, his indecision about the deficit could matter much more for the country's long-term national security. Call the United States what you like—superpower, hegemon, or empire—but its ability to manage its finances is closely tied to its ability to remain the predominant global military power. Here's why.

The National Retail Federation has reported that the average Thanksgiving spend has declined from $372 in 2008 to $343 in 2009, as more shoppers sought out rock-bottom 5 am bargains: the estimated number of bargain hunters increased from 172 million to 195 million.

Saturday, November 28, 2009

U.S. perma-bulls were once again giddy this morning with the latest reading on “existing home sales” - which spiked to an annualized rate of just over 6 million units. However this comes only days after a piece of much gloomier news, which (naturally) was ignored by the media propaganda-machine.

One in seven U.S. homeowners with a mortgage are either delinquent on their mortgage payments, or already in the foreclosure process. Thus, we are presented with data that more people are buying homes in the U.S. but less people are paying for them. Surely it is evident to even the most obtuse market-observer that it is irrelevant how many people are buying homes if they can't afford to make the mortgage payments.

The U.S. housing market has gone from bubble-and-bust to a game of “musical chairs” where title to properties flips back and forth from “homeowners” to financial institutions – with the “homeowners” unable to make payments on their homes (while they hold title), and the banks refusing to write down these “assets” once they take possession (and this is called a “recovery”).

Friday, November 27, 2009

A dollar plunge could ravage the U.S. economy as soon as 2012, when foreign investors are likely to exit en masse from U.S. assets, according to a new book by two analysts who forecast the recent credit crisis.

Even after credit, stock and housing bubbles popped in the past two years, dollar denominated assets are still overvalued, and a bigger crisis is yet to come, write the authors of "Aftershock: Protect yourself and profit in the next global financial meltdown".

Huge U.S. government debt issuance will drag the dollar into a much deeper dive, say analysts David Wiedemer and Robert Wiedemer, and writer Cindy Spitzer.

In the short term, China and other foreign investors will keep buying Treasuries to curb their currencies' appreciation against the dollar, say the analysts, who forecast the financial crisis in the 2006 book, "America's Bubble Economy".

Over the long run, investors will slash purchases as bond prices drop, according to the book published this month.

Though most of the pressure on the dollar will come from the Chinese yuan and other resurgent Asian currencies, the euro will eventually punish the debt-burdened dollar, said Robert Wiedemer in a telephone interview with Reuters this week.

United Arab Emirates — Just a year after the global downturn derailed Dubai's explosive growth, the city is now so swamped in debt that it's asking for a six-month reprieve on paying its bills – causing a drop on world markets Thursday and raising questions about Dubai's reputation as a magnet for international investment.

The fallout came swiftly and was felt globally after Wednesday statement that Dubai's main development engine, Dubai World, would ask creditors for a "standstill" on paying back its $60 billion debt until at least May. The company's real estate arm, Nakheel – whose projects include the palm-shaped island in the Gulf – shoulders the bulk of money due to banks, investment houses and outside development contractors.

In total, the state-backed networks nicknamed Dubai Inc. are $80 billion in the red and the emirate needed a bailout earlier this year from its oil-rich neighbor Abu Dhabi, the capital of the United Arab Emirates.

Best Buy Mobile will be the place to get great holiday deals on several popular smartphones and the innovative Sprint MiFi device.

This holiday, Best Buy Mobile will have five smartphones operating on the Google Android platform across three carrier networks for $99 each with a new two-year activation. These smartphones include the HTC Hero (Sprint), myTouch 3G (T-Mobile), Motorola Cliq (T-Mobile), Samsung Moment (Sprint) and DROID ERIS™ by HTC (Verizon Wireless).

Los Angeles must take dramatic steps in coming months to bring its budget back into balance, including measures to slim the size of its government and reduce how much it spends on pensions for retired employees, the city's top budget official said on Wednesday.

Fitch Ratings has grown so concerned about Los Angeles' budget woes that on Tuesday it downgraded the city's general obligation debt to AA-minus from AA.

Fitch said it expects the city's economic decline to impede financial recovery. Among problems it cited were high unemployment, sales tax weakness, assessed value losses, high home foreclosure and negative amortization mortgage exposure.

Miguel Santana, the city's administrative officer, said he was not surprised by the downgrade. He is intimately aware of how the city's finances are faring, and they're in dire shape, he told Reuters in a telephone interview after briefing the city council on options for balancing the city's books.

Thursday, November 26, 2009

In case you missed it -- or were just plain confused -- this week saw the release of a bewildering number of housing indicators. The S&P/Case-Shiller Index, which tracks national home prices, reported a tiny gain in home prices for September -- for the fifth consecutive month of growth. Separately, the National Association of Realtors said that sales of previously owned homes were up 10 percent from September. And federal data released today showed a 6.2 percent increase in new homes sales in October. Got that?

For his part, Barry Ritholtz, CEO of Fusion IQ and author of The Big Picture blog, was much less circumspect in an interview with Yahoo's Tech Ticker today: "We're not even close to a bottom in the housing market," he said.

According to Ritholtz, the housing data show an "artificial move up," because the reports are largely built on seasonally adjusted numbers and because "areas that have the most foreclosures are seeing most of the activity." People buy foreclosed-on homes and then flip them, resulting in double counting and the "illusion of activity."

The bulls point to resurgent growth in the emerging markets of Asia and Latin America, and reckon the developed world will soon be following, albeit it at a slower pace. The bears focus instead on burgeoning fiscal deficits, still shrinking private credit availability and a basic lack of demand in once buoyant deficit nations. For them, the big menace is "out of control" public debt.

Yet for the moment there is no doubt which view is triumphing. Since the nadir of the crisis in March, the price of virtually all assets has risen strongly. I say virtually all, but of course one of the biggest asset classes of the lot – government bonds – has not. Bond prices are quite a bit lower than they were last March. And therein lies a large part of the bear case.

If all governments have done in fighting the crisis is replace private debt with public debt, then they have not addressed the underlying problem. The most that can be said is that they have smoothed and stretched out the adjustment, but they have not removed it.

What's more, governments must soon start the process of rebuilding their finances, which in turn is going to act as a brake on demand for possibly years to come. In the meantime, fiscal deficits throughout the developed world are rising to levels which even the most sanguine of observers find truly scary.

The FHA continues to guarantee risky loans on behalf of the American public. And they’re now backing loans of almost $1m. Clearly, the FHA no longer serves the purpose it was created for – providing responsible loans to low-income and minority borrowers.

The current system simply transfers risk from private lenders to taxpayers. What a deal for lenders – government takes all the risk, and lenders only have to do paperwork and service the loan. With this kind of sweetheart deal, it’s no surprise that banks are reaping huge profits.

Part of recent profits are due to banks setting aside smaller cash reserves to cover losses. But why should they? Taxpayers will mop up the red ink, while banks reap all the gains. See Freddie Mac, Fannie Mae, AIG, and GMAC for more examples. Quite the recurring theme these days.

Add accounting gimmicks and low interest rates, and voila! Banks look great again. The overall economy, not so much. But banks are cleaning-up.

The safe-haven dollar slid to a 15-month low against the euro, was within striking distance of 14-year lows versus the yen and dipped below parity against the Swiss franc Wednesday as markets absorbed the Federal Reserve's indication that interest rates will remain at super-low levels for a while and it was not overly concerned by the U.S. currency's decline.

Against a basket of six currencies including the euro, yen and franc, the dollar fell as low as 74.245, its weakest point since August 2008 and its steepest one-day drop since July 31, said Joseph Trevisani, chief market analyst at FXSolutions.

Wednesday, November 25, 2009

India is open to buying more gold from the International Monetary Fund (IMF). It bought 200 tonnes for $6.7 billion on November 3. The Reserve Bank of India (RBI) may well buy IMF’s remaining hoard of 201.3 tonnes on acceptable terms, which are now under negotiation.

A government official said that the additional purchase would depend on the “successful pitching by RBI”. “RBI is an independent body, and the government does not interfere in its affairs. It will get the gold if its bid is successful and at the price it has offered,” said the official. RBI did not respond to Financial Chronicle questions if it was bidding for the remaining IMF gold. The purchase of the first lot of 200 tonnes, RBI had said at the time, was a part of its foreign exchange reserves management operations.

The economy is growing modestly, with consumers too wary about spending to invigorate the recovery.

That's the picture that emerged from reports Tuesday on the economy and the confidence of consumers, who power 70 percent of it.

Unemployment and tight credit have sapped shoppers' willingness and ability to spend freely as retailers enter their crucial holiday season. And Americans are expected to grow more cautious about spending next year. That would make for a plodding recovery.

The economy grew at a 2.8 percent rate last quarter, a significant revision of initial figures putting the growth rate at 3.5 percent. Forecasts for the current quarter are for similarly lackluster growth before a drop-off next year.

"It's hardly a rip-roaring recovery," said Stuart Hoffman, chief economist at PNC Financial Services. "Usually coming out of a recession you get growth more like a rodeo bull -- at a pace of 6 or 7 percent in the early quarters of recovery. That isn't happening. It is coming out of the stalls more like a fat cow."

New York Times columnist Paul Krugman sounded more dire. "This is really quite grim. At this growth rate it's far from clear that we're doing anything to reduce the output gap -- the gap between what the economy could produce and what it's actually producing. Correspondingly, there's no reason now for even a bit of optimism on unemployment."

Earlier we presented one view on why gold is about to plunge. While that perspective was somewhat truncated, a report recently issued by Bank Of America's commodities team presents the case for gold at $1,500/ounce. As BACMLCFC observes, and agrees with other observations presented on Zero Hedge by both SocGen and by Jim Grant, "[d]uring the last decade we found that three variables alone could explain the fluctuations in the price of gold: risk, currency and commodity prices. In a nutshell, our analysis showed that gold is sometimes a currency, sometimes a commodity and sometimes a store of value. Of course, the elusive question will always be figuring out which market gold will track next." In essence, a detailed if longwinded report (get a cup of coffee now) to confirm that Paulson and Ackman will soon be much richer.

Tuesday, November 24, 2009

Gold jumped to a record price as the slumping dollar boosted bullion’s appeal as an alternative asset. Silver also gained.

Gold futures touched an all-time high of $1,174 an ounce in New York, after the dollar fell as much as 0.9 percent against the euro. Gold has posted records during nine sessions this month, and is up 32 percent this year as investors and central banks increased their holdings of the metal to preserve wealth. Russia’s central bank said it bought more bullion last month.

“All this buying shows no confidence in the dollar,” said Bernard Sin, the head of currency and metals trading at bullion refiner MKS Finance SA in Geneva.

In a word, the Keynesian Kool-Aid drinkers are saying that debt doesn't matter.

As I see it, there are plenty of reasons to challenge the apparent indifference of Paul Krugman, Dean Baker, James Kwak, and others to the parabolic rise in public debt, including the fact that the latest crisis, like many of those before it, stemmed from a similar complacency about the risks of unrestrained borrowing.

But as someone whose long experience in financial markets helped him to anticipate the kinds of earth-shattering developments most economists didn't see coming, I find the popular argument that current low yields on government bonds are a vote of confidence on current policies to be utterly ridiculous.

For one thing, long-term rates are being influenced to an extraordinary degree by the Federal Reserve, which has been supplying copious amounts of liquidity to the financial sector. With banks unwilling to channel those funds into loans for Main Street, this cheap financing is effectively underwriting their massive purchases of Treasury and other securities, distorting prices (and yields).

As millions of Americans struggle to hold on to their homes, Wall Street has found a way to make money from the mortgage mess.

Investment funds are buying billions of dollars’ worth of home loans, discounted from the loans’ original value. Then, in what might seem an act of charity, the funds are helping homeowners by reducing the size of the loans.

But as part of these deals, the mortgages are being refinanced through lenders that work with government agencies like the Federal Housing Administration. This enables the funds to pocket sizable profits by reselling new, government-insured loans to other federal agencies, which then bundle the mortgages into securities for sale to investors.

While homeowners save money, the arrangement shifts nearly all the risk for the loans to the federal government — and, ultimately, taxpayers — at a time when Americans are falling behind on their mortgage payments in record numbers.

The public will not bail out the financial services sector for a second time if another global crisis blows up in four or five years time, the managing-director of the International Monetary Fund warned this morning.

Dominique Strauss-Kahn told the CBI annual conference of business leaders that another huge call on public finances by the financial services sector would not be tolerated by the “man in the street” and could even threaten democracy.

"Most advanced economies will not accept any more [bailouts]...The political reaction will be very strong, putting some democracies at risk," he told delegates.

"I do believe that the financial sector needs to contribute both to the costs of the financial crisis and to reduce recourse to public funds in the future," he said.

Sunday, November 22, 2009

Wild, off-the-wall gold forecasts -- some of which have proved to be anything but wild or off the wall -- are a dime a dozen. Here's one that floored me; maybe it'll floor you, too.

First, the last thing I want to do is sound like a broken record after having written a very recent piece on the global buying rampage in gold. Nonetheless, I felt compelled to do a fast follow-up on the ongoing skyrocketing investment demand for the precious metal after hearing what has to vie for the mother of all gold forecasts.

No, it's not one of those flamboyant predictions that gold -- which topped $1,000 an ounce in early September and recently sprinted to a new all-time high of $1,153, is headed for the moon. Rather, it's an equally shocking assertion from a market-savvy veteran online investment adviser, Mark Leibovit, who not only sees the metal ballooning to new highs, but tells me "I doubt that we'll ever see $1,000 gold again."

Why not? Because of such catalysts, he explains, as the sinking dollar and the debasing of currencies by 24/7 money-printing around the globe (both of which point to higher inflation down the pike). Yet another catalyst for a higher gold price is a significant flip-flop by central banks, which have switched from gold sellers to gold buyers. As a result, Leibovit says, something above $1,000 an ounce is shaping up as a new floor for the metal.

Saturday, November 21, 2009

Federal Reserve officials on Thursday downplayed the consequences of the falling U.S. dollar, pointing to deflation as a lingering threat. The dollar has fallen 7 percent so far this year and likely has become a funding vehicle for bets on higher-yielding currencies in growing emerging markets. So how should investors guard their portfolios? Jim Rickards, senior managing director of market intelligence at Omnis, shared his insights.

“[The Fed is saying] we’re nowhere near the all-time lows, we’re back to where we were 15 to 18 months ago…So they look at that and say we’ve been there before,” Rickards told CNBC.

“My only view is that it’s a much more unstable and dangerous world: In the '80s, our creditors were Japan, Europe and the [Arab states]—and the three of them were utterly dependent on the U.S. for their national security.”

China is now the U.S.' main creditor and they don’t depend on America for national security, said Rickards. So the U.S. "doesn’t have a lever" to keep China "in line" economically or force Beijing to buy Treasury securities.

Rickards cautioned investors to stay out of the currency trade, as Fed Chairman Ben Bernanke is selling the U.S. dollar and China is selling its yuan. Instead, he advised investors to buy gold.

“Gold is not moving on a monetary vector, it’s moving on supply/demand fundamentals,” he said.

“Very few people think of gold as money. If you think of gold as money, that level is a range between $4,000 and $11,000 an ounce—that’s the price gold will have to be to support the money supply.”

Friday, November 20, 2009

The foreclosure crisis likely will persist well into next year as high unemployment pushes more people out of homes, pulls down housing prices and raises concerns about the broader economic recovery.

The latest evidence was a report Thursday that a rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure. That's a shift from last year, when riskier subprime loans drove the housing crisis.

The report from the Mortgage Bankers Association also found that 14 percent of homeowners with a mortgage were either behind on payments or in foreclosure at the end of September. It was a record-high figure for the ninth straight quarter.

The data suggest the housing market and the broader recovery will remain under pressure from the surge in home-loan defaults, especially as unemployment keeps rising. Lost jobs are the main reason homeowners are falling behind on their mortgages.

An unusual coalition of progressive economists, labor leaders, and bloggers has decided to fight back against a congressional amendment that would allow the Federal Reserve to continue operating in secrecy.

In a Thursday letter to the House Financial Services Committee, economists like Dean Baker and Rob Johnson, author Naomi Klein, and such labor luminaries as the AFL-CIO's Richard Trumka and the SEIU's Andy Stern, urged committee members to shoot down an amendment by Rep. Mel Watt (D-N.C.) that would essentially allow the Fed to keep the lights off while it throws money around.

Watt's amendment, which could see a House vote today, is a direct attack against a separate measure by Reps. Ron Paul (R-Texas) and Alan Grayson (D-Fla.). That measure, known as the "Audit the Fed" bill, has been gaining momentum in Congress for months.

"A vote for the Watt amendment is a vote for more secret bailouts," the letter says.

Thursday, November 19, 2009

Gartner, Inc. has identified the top 10 consumer mobile applications for 2012. Gartner listed applications based on their impact on consumers and industry players, considering revenue, loyalty, business model, consumer value and estimated market penetration.

“Consumer mobile applications and services are no longer the prerogative of mobile carriers,” said Sandy Shen, research director at Gartner. “The increasing consumer interest in smartphones, the participation of Internet players in the mobile space, and the emergence of application stores and cross-industry services are reducing the dominance of mobile carriers. Each player will influence how the application is delivered and experienced by consumers, who ultimately vote with their attention and spending power.”

“The ultimate competition between industry players is for control of the ‘ecosystem’ and user experience, and the owner of the ecosystem will benefit the most in terms of revenue and user loyalty,” Ms. Shen said. “We predict that most users will use no more than five mobile applications at a time and most future opportunities will come from niche market ‘killer applications’.”

Dominique Strauss-Kahn, the managing director of the International Monetary Fund, said that the yuan may in future be added to the basket of currencies that set the value of IMF monetary units called special drawing rights.

The yuan, also known as the renminbi, could be added in a “while,” Strauss-Kahn said at a press briefing in Beijing today. The move would require the currency to be market-based, he said.

Today’s comments highlight the widening role for the currency of the world’s fastest-growing major economy at a time when officials from countries including China and Russia have challenged the dollar’s dominant position. While China is arranging for more cross-border trade to be settled in yuan, the currency is limited by not being freely convertible.

“The stability of the international financial system can’t hinge on the currency of one single country, even though that’s the largest economy in the world,” said Hua Ercheng, chief economist in Beijing at China Construction Bank Corp. and a former economist with the Washington-based IMF. “The currency basket of SDRs needs to be more representative to diversify risks.”

The 25-year veteran of the global stock, bond, and currency markets was one of the few who called the crisis before it happened, with a book aptly titled "Financial Armageddon."

Today, Panzner calls a V-shaped recovery "ridiculous," says commercial real estate is a bubble sure to burst, and is fearful that there's far too much speculation on commodities, risky stocks and emerging markets. In short, he says "the world is a riskier place and will continue to stay that way going forward."

The market share of subprime US home mortgages, which caused the collapse of the housing market at the epicenter of the financial crisis, has returned to pre-crisis levels, a central bank report showed Monday.

But the Federal Reserve Bank of San Francisco study said nearly all of the loans were now owned or guaranteed by the government, which has pumped hundreds of billions of dollars to keep the market afloat.

Government-backed agencies Fannie Mae, Freddie Mac and Ginnie Mae "are providing unprecedented support to the housing market -- owning or guaranteeing almost 95 percent of the new residential mortgage lending," said John Krainer, a senior economist with the regional central bank who penned the report.

"This shift in mortgage finance has had a profound impact on the types of borrowers receiving loans," he said.

The subprime market had shrunk to virtually zero percent in the first quarter of 2008 after triggering the housing collapse following defaults by borrowers.

Wednesday, November 18, 2009

Gold hit another all-time high on Wednesday on worries about future inflation and economic uncertainties, while Asian stocks rebounded as the generally bearish dollar kept riskier assets in demand.

Spot gold rose as high as $1,143.95 per ounce in early Asia trade, settling later just above $1,140, with expectations for a continued weakness in the US currency also providing a support.

The dollar rose as investors trimmed short positions after euro zone economic policymakers followed US Federal Reserve Chairman Ben Bernanke in commenting about the merits of a strong dollar, but dealers said the rebound would likely be limited.

"It's going to be hard for the dollar to gain further, since it looks like that the US will keep its low interest rate policy for a while," said Tomohiro Nishida, treasury department manager at Chuo Mitsui Trust and Banking Company in Tokyo.

Tuesday, November 17, 2009

Google was very cagey when asked what its Google Voice team would do with the Gizmo5 startup it acquired last week.

Gizmo5 makes Web-based calling software for mobile phones and computers. Specifically, it provides a Web-based VOIP client that lets users make phone calls over the Internet, similar to programs such as Skype.

Google's secrecy matters little, at least in Andy Abramson's mind. The VOIP consultant, who long lobbied for Google to buy Gizmo5, said Google could take the Gizmo5 assets, bolster the Google Talk Web chat client and bundle them with Google Voice, the phone management application that rings calls to home, work and cell phones through one number.

That's how Google would take on Skype, but there is potential for a broader play here.

Combine the Google Talk (with Gizmo5 endpoint support) and Google Voice applications with Google's Android mobile operating system and users have one control point for all of their Web-based calling needs.

Google will have the opportunity to offer PC-to-PC and PC-to-phone calling services, supported by Android devices with Android applications without racking up minutes on carriers' cell phone data plans. People have done this!

In a rare moment of intervention into the currency markets from America's leading central banker, Mr Bernanke admitted the Fed is watching the dollar "closely" as part of its focus on employment growth and price stability.

Mr Bernanke stressed the dollar will remain "strong" and continue as a "source of global financial stability".

But his comments, part of a speech in New York, were not enough to stop the dollar's fall, easing 0.6pc against a basket of major currencies, allowing sterling to rise by more than a cent to $1.6830.

The Fed chairman went on to reiterate the central bank's earlier commitment to keeping US interest rates exceptionally low "for an extended period".

Barclays Capital's US economist Michelle Meyer interpreted Mr Bernanke's comments as "simply stating that the Fed will monitor the dollar…and…not suggesting that the Fed will try to target the dollar".